Saturday, April 30, 2011

Book Review: Good Money by George Selgin

I stopped reading Rothbard in my spare time because I picked up (finally) George Selgin's wonderful 2008 book "Good Money" published by the Independent Institute. By the way, I love II; check out their quarterly journal The Independent Review, or the blog the Beacon. Now I've finished Good Money, so will get back to Rothbard, but I want to first share a couple of thoughts about Good Money.

Good Money is about the shortage of money in England in the 18th and 19th century. It's a story of how commercial "token" makers - claims to money, really - overcame the shortage caused by the Royal Mint's lack of production of sufficient money.

First, from a general readability perspective, it's very enjoyable. You have to have an historical bent to your nature to appreciate it, though. Selgin is an engaging writer, and I think sometimes his research on the topic modified his own prose such that sometimes I wasn't sure if the book was written in 2008 or in the 19th century. I certainly learned more about steam power and numismatics than I ever thought I would.

Second, Prof. Selgin's detailed analysis of the problems arising from insufficient money supply really help one to understand the danger of monetary deflation. Price deflation due to productivity increases is welcome, but price deflation due to monetary deflation is of concern. In monetary deflation, people can't buy the goods they want, business owners can't pay their workers nor can they pay their suppliers, all for want of exchange media. The way this arises in a modern economy is that people's desire to hold money balances increases in excess of the increase in money supply, but I do believe the effects are the same. It's the Friedman and Schwartz point regarding the causes of the Great Depression.

The third point is that Prof. Selgin shows how the market can solve government failure. Normally the discussion goes in the other way, especially from a neoclassical economics perspective. His work shows the importance of local knowledge, a fundamentally Hayekian point. It also shows that money isn't a rarefied commodity that can only be supplied by the state. From the perspective of our current conundrums, I think this is an important discussion economists need to have. The twin assumptions that we need a central bank and a money monopolist must be challenged.

Finally, I'm inspired by Prof. Selgin's work to begin pursuing my own historical analysis. Not of money, since I'm no monetary economist, but of something of great interest to me: spontaneous order in financial reporting. I haven't seen any discussion of this issue and it's high time.

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